Short Put Vs Bull Put Spread Options Trading Strategy Comparison

Short Put works well when you're Bullish that the price of the underlying will not fall beyond a certain level.

This strategy works well when you're of the view that the price of a particular underlying will rise, move sideways, or marginally fall.

When you are expecting the price or volatility of the underlying to increase marginally.

• Sell Put Option

A short put strategy involves selling a Put Option only. So if you see that the shares of a Company A will not move below a 1000 then you sell the Put Option of that stock at 1000 and receive the premium amount. The premium received will be the maximum profit you can earn from this deal. However, if the price of the underlying moves below 1000 than you will incur losses.

• Buy OTM Put Option
• Sell ITM Put Option

A Bull Put Strategy involves Buy OTM Put Option + Sell ITM Put Option.

For example, If you are of the view that the price of Reliance Shares will moderately gain or drop its volatility in near future. If Reliance is currently trading at 600 then you will buy a OTM PUT OPTION at 700 and a sell a ITM PUT OPTION at 550. You will make a profit when at expiry Reliance closes at 700 level and incur losses if the prices fall down below the current price.

There is no limit to losses incurred in the trade. The risk is when the price of the underlying falls, and the Put is exercised. You are then obliged to buy the underlying at the strike price.

Maximum loss occurs when the stock price moves below the lower strike price on expiration date.

Max Loss = (Strike Price Put 1 - Strike Price of Put 2) - Net Premium Received

Max Loss Occurs When Price of Underlying <= Strike Price of Long Put

The profit is limited to premium received in your account when you sell the Put Option.

Maximum profit happens when the price of the underlying moves above the strike price of Short Put on expiration date.

Max Profit = Net Premium Received

Underlying doesn't go down and options remain exercised.

Both options unexercised

Underlying goes down and options remain exercised.

Both options exercised

It allows you benefit from time decay. And earn income in a rising or range bound market scenario.

Allows you to benefit from time decay in profit situations. Helps you profit from 3 scenarios: rise, sideway movements and marginal fall of the underlying.

It is a high risk strategy and may cause huge losses if the price of the underlying falls steeply.

Limited profit. Time decay may go against you in loss situations.

Bull Put Spread, Covered Call, Short Straddle